Can You Remove Student Loans From Your Credit Report?

How to remove student loans from a credit report is a popular topic for just about anyone who has a student loan.

But let’s get this broad question topic off the table right away: removing student loans from a credit report is not possible, at least not legally!

And if your student loan is in good standing, you shouldn’t want to remove it anyway. It’ll be a good credit reference, that will help your credit score.

The more specific question may be “how to get student loans off your credit report that are in default”.

Table of Contents:

  • How To Remove Negative Student Loan Info
  • Sample Student Loan Dispute Letter
  • Follow Up

How To Remove Negative Student Loan Information From My Credit Report

Certainly, everyone with a defaulted student loan would be interested in the magic formula for that one.

But just as it’s not possible to get a student loan that’s paid on-time off your credit report, it can’t be done with a defaulted one either. In fact, it may be even more difficult in the case of a defaulted loan.

So let’s modify the question a bit from how to remove student loans from a credit report? to how to remove negative student loan information from a credit report?

In most cases, that can be done with a well-worded student loan dispute letter. And you may need to do that, because negative student loan entries will remain on your credit report for up to seven years.

The Type of Student Loan Matters

In general, the type of student loan you have will make a difference in this process. It’ll be easier to remove negative credit information from a federal student loan than a private loan.

Federal Student Loans

When it comes to late payments or the threat of default, Federal student loans offer a number of options not available with private loans. For example, if you’ve defaulted on a federal loan, then make nine out of 10 consecutive on-time monthly payments, the default will be removed from your credit record.

You can also take advantage of income-driven repayment plans that will lower your monthly payment to a small percentage of your income, even if you’re in default. You can even have your federal student loan forgiven through the public service loan forgiveness program, through 10 years of service with either a government agency or an approved nonprofit, and as long as you make your payments on time in the process.

If your federal student loan is in default you should try any of these options.

Private Student Loans

The situation is more constrained when it comes to private student loans.

Though some will offer some type of forbearance if you’re experiencing economic hardship, they’re unlikely to remove a default or legitimately late payment (or series of late payments) from your credit report.

What You Can Have Removed From Your Credit Report

While it’s not possible to make all negative entries on your student loans disappear, there are a few you can fix:

  1. Removal of a student loan that does not belong to you.
  2. Correction of late payments reported in error.
  3. Negative information reported on your student loan while it’s in deferment or forbearance.
  4. Correction of default status that’s reported in error.

Number 4 is the most damaging, but it can happen even if you’re making your payments on time. Sometimes payments are misapplied, or there’s a clerical error on the servicer side, either of which can result in your student loan being placed into default status.

If you’re facing any of these situations, you’ll need to do your homework, determine what the error is, and dig up any documentation you can to prove the negative information is incorrect.

Once you do, contact your student loan servicer and see if you can get the situation resolved over the phone. But if you call, make sure you follow up with email contact, and request an email response. This will create the all-important “paper trail” in case there are any questions later on. Be sure to print copies of your email communication with your servicer. You may need those copies should the negative information mysteriously reappear (and that does happen!).

However, it’s usually best to handle the process in writing. To do that you’ll need to create a convincing student loan dispute letter. If you’ve done your homework, you know what the problem is, and you have documentation to prove your point, the student loan dispute letter will be more effective.

Ask Lexington Law For Help

Sample Student Loan Dispute Letter

We’re going to focus the following student loan dispute letter on correcting a default entry that’s been reported in error.

Including supporting documentation will provide proof of your claim.

John J. Jones
200 Main Street
Bugtussle, TN 37998

January 1, 2020

Shania S. Smith
Labyrinth Student Loan Servicing Corporation
400 Elm Street
Nashville, TN 37999

RE: Student loan #XJYZ000198786PPZX567940001112XYZ1235987-01J

Dear Ms. Smith:

A recent copy of my credit report indicates my student loan is being reported as being in default. A copy of the page from my credit report is enclosed. However, this credit status is an error. My loan is in active status, with all payments being made on time.

Enclosed are copies of evidence of payments on the account for the past six months, as well as the most recent statement notification showing the account is active and in repayment status.

Please correct the information in your company’s records to show that the account is current and up-to-date, and has never been in default.

I also request that you provide the corrected information to each of the three major credit bureaus – TransUnion, Equifax and Experian – so their records will show the corrected status on this account.

Please provide written confirmation of receipt of this letter, as well as the corrected status on the account and confirmation that notice of the correction has gone out to the three credit bureaus.

If more information is required please contact me at (266)555-1234, or by email at johnjjones1979@gmail.com.

Sincerely,

(Your signature)

John J. Jones

Enclosures: Credit report page, recent payment notification, evidence of monthly payments

You Must Follow-up on the Student Loan Dispute Letter

Your letter should be sent to the loan servicer by certified mail, return receipt requested. That will provide evidence it’s been sent and received.

2 Week Follow-up

If you don’t hear from the company within two weeks, follow-up with a phone call. Student loan servicing agencies are notoriously slow, so you may need to make a pest of yourself.

30 Day Credit Report Check

Once you do get confirmation from the servicer, wait at least 30 days and pull your credit report again. Make sure the corrected information has been reported by all three major credit bureaus. If it’s not, you’ll need to follow up with the bureaus yourself.

Get a FREE Copy of Your Credit Report

File An Account Dispute with the 3 Credit Bureaus if Not Corrected

You can have the information corrected with the bureaus yourself. All you need to do is file an account dispute with each of the three credit bureaus, and they’ll be required by law to follow up with the loan servicer within 30 days. If the servicer confirms the corrected information to the bureaus, the negative information will be removed.

But what if there’s any kind of mysterious bureaucratic foul-up, and the corrected information isn’t accurately reported?

Recall that in the sample student dispute letter above we included Please provide written confirmation of receipt of this letter, as well as the corrected status on the account in confirmation that notice of the correction has gone out to the three credit bureaus.

Even if the student loan servicing company has not reported the corrected information to the three bureaus, you can send a copy of the servicer’s response letter to each of the bureaus. They’ll be required to correct the credit entry within 30 days.

Be Patient

On a final note, you’ll need to keep your cool with this process and be patient. Student loan servicing companies are not the easiest agencies to deal with. You’ll need to be persistent, and maybe even more than a little bit relentless to get a problem resolved.

What Is Credit Repair and How It Works

We normally associate credit repair with people who have bad credit. But almost everyone will need some credit repair help at some point in life.

Yes, credit repair is a bigger deal for people with lower credit scores, but even consumers with good credit scores can get better offers from lenders by improving their credit files.

For example, a home buyer with a FICO score of 780 will have multiple mortgage options while someone with a FICO score of 580 may qualify for only one type of home loan.

When you have multiple lenders hoping to sell you a loan, you’re likely to save thousands of dollars in interest charges and borrow larger amounts.

If you need to upgrade your credit report, keep reading.

You may need negative information removed from your credit history. You may need to rearrange your debts to get your credit score higher. Or you may just need to start making on-time payments to build positive credit momentum.

All of these strategies, and a few more, qualify as credit repair.

Table of Contents:

  • What is Credit Repair
  • Credit Repair Companies
  • Credit Repair Software
  • DIY Credit Repair
  • Credit Repair Takes Time
  • Credit Repair Infographic

What is Credit Repair?

When you’re ready to increase your credit score so you can get lower interest rates on your loans, you’ll need to take actions that fall within two broad categories:

  1. Deleting or minimizing negative information that’s now appearing in your credit reports.
  2. Adding new positive entries on your credit reports by developing strong credit habits and making sound decisions.

Let’s look closely at each strategy because you’ll likely need to use both:

Eliminating or Minimizing Negative Credit Information

Negative items pull down your credit score. To remove negative information, you must start by identifying it.

This process starts at annualcreditreport.com where you can download free credit reports. You should get three reports — one each from Experian, TransUnion, and Equifax, the three major credit bureaus.

Once you have a copy of your most recent free credit reports, examine each line of each report. When you see negative information, circle or highlight it — or take notes you can refer back to later.

Negative information includes late payments, missed payments, hard inquiries, bankruptcies, and repossessions.

LOOK FOR CREDIT REPORTING ERRORS AND DISPUTE THEM

Look back at the negative information you found in your reports. Is all of it accurate information?

If not, you’ll have an easier time deleting this information because the Fair Credit Reporting Act requires credit reporting agencies to report only accurate information.

Incorrect information could include collections accounts that are not yours, accounts with negative payment histories that belong to someone else such as an ex-spouse, or open balances you’ve long since paid off.

By getting this incorrect information fixed, or removed from your report entirely, your credit score will get an instant boost.

Check out my post about writing dispute letters to get started.

MINIMIZE THE DAMAGE FROM NEGATIVE INFORMATION

Once you’ve disputed the inaccuracies pulling down your credit score, you’ll also want to address the accurate information that’s impacting your score.

You shouldn’t dispute accurate information but you do have some options for removing it:

  • Write Goodwill Letters: When you’ve paid off a balance but it still remains on your credit report, you can ask the debt collector to remove its negative information as an act of goodwill. See my post about goodwill letters here.
  • Make Pay-for-Delete Agreements: When you haven’t paid off a debt collector yet, you may be able to use your remaining balance as leverage. You could agree (in a written contract) to pay the bill (or part of it) in exchange for getting the negative item removed from your credit history. You can find some details about a pay-for-delete agreement here.

These are the two main ways to remove negative items from your own credit.

You could also hire a professional to do this work for you. I recommend Credit Saint and Lexington Law. These credit repair services aren’t scams. They’ll do the heavy lifting for you while also protecting your legal rights as a consumer.

Increasing Positive Credit Entries

Along with removing negative information that presents red flags to potential lenders, you should also add new positive credit data that will tell lenders you’re a reliable borrower.

This is especially true for younger people just starting out building a credit file.

If you already have good credit, you’ll naturally want to continue making your payments on time and following these other guidelines so you can protect your good credit history.

MANAGE YOUR CREDIT UTILIZATION

Excessive credit utilization is one of the biggest potential negatives that you can avoid by taking one action: paying down your credit card balances and keeping them paid down.

Almost a third of your FICO credit score comes from your credit utilization ratio. This ratio is the amount of money you owe on revolving credit divided by your total credit limits.

For example, let’s say you have five credit cards with a combined credit limit of $20,000. If you owe a total of $15,000 across the five cards, your credit utilization ratio is 75% ($15,000 divided by $20,000).

A credit utilization ratio of 75% is excessive, and this will weigh down your credit rating.

A credit utilization ratio of 80% tells lenders you’re a risk for defaulting since you’re nearly maxing out your cards.

The lower the rate is, the better. But a ratio below 30% is considered ideal. If you have a good credit score, and you’re looking to improve it, getting the ratio below 30% may be the most important strategy.

Pro tip: Keep a credit card account open even after you’ve paid it off to help minimize your credit utilization ratio. Do not continue using the paid-off account.

MAKE YOUR PAYMENT HISTORY SHINE

Credit utilization matters a lot but your payment history matters even more. By making on-time payments on all your loans and credit cards, you’re building a good credit score, brick by brick.

Payment history comprises 35% of your FICO score. So missing a single payment on your student loan or credit card and your score will suffer.

Miss several payments in a short period of time and you’ll have a poor credit score within months.

If you can’t afford your payments, look into a debt consolidation loan before you miss payments and get poor credit since a lower credit score limits your loan options.

USE SPECIAL CREDIT BUILDING LOANS IF NECCESARY

People repairing their credit often come across this Catch-22. You need a solid payment history to improve your credit, but you can’t make payments unless you get approved for new credit, right?

Well, this is a big problem for people, but I know two good ways to spring this trap without having to bother anybody about co-signing on your loan or credit card:

  • Secured credit cards: With secured credit cards you pay the card issuer a deposit to secure your own credit limit. No, you won’t really be borrowing money, but you will be adding positive data to your payment history by making the payments on time.
  • Credit builder loans: These loans work like secured credit cards except they’re even easier to use. Ask your bank or credit union if they offer credit builder loans. All your “borrowed” money from the loan will go into a special savings account to fund your regular on-time payments. This can get the ball rolling toward good credit.

Make sure your card issuer or lending bank reports your payment history to the three credit bureaus before getting one of these financial products. Reporting your payment history is the whole point.

If you build a positive payment history you should start seeing an increase in your credit score within a few months.

PAY OFF EXISTING LOANS

One of the best ways to increase your score is by paying off a loan or a credit card.

We’ve already discussed the importance of credit utilization ratio, and paying off credit cards improves this ratio.

But paying off a credit card or an installment loan completely, you’ll boost your credit score by at least a few points immediately.

The credit bureaus like paid loans because they confirm you’ve successfully completed your credit obligations. The more paid-off loans you have, the better.

This isn’t to say that you need to pay off all your loans. But your credit report should reflect a healthy mix of both open and paid loans.

You could do this by taking small loans, making the payments on time, and paying them off early.

LIMIT NEW CREDIT APPLICATIONS

When you saw a copy of your credit reports you may have noticed a section dedicated to credit inquiries.

Each time you apply for a credit card or loan, the lender will check your credit score. These checks can, over time, lower your credit score.

So apply for new loans only when you have to — and only if you think you have a good chance for approval.

Soft credit inquiries will appear when you check your own credit score or when you get pre-approved for a loan. These soft inquiries will not hurt your credit score.

Credit Repair Companies

Everything in this post, so far, has explained ways you can build new credit and improve existing credit by deleting negative items from your credit history.

You can do all this work by yourself, and this blog is dedicated, in part, to exploring how to fix and build your own credit.

But credit repair services exist for a reason. They offer a professional service: repairing your credit for you.

Who Needs Professional Credit Repair Services?

If one or two negative items are pulling down your credit score, you should seriously consider repairing your own credit because paying a pro would not be cost-effective.

If you have an average or good credit score, and you’re just looking to improve it over time, follow the guidelines above and don’t hire a pro.

But if you have fair or poor credit, caused by multiple negative credit entries that seem to be overlapping and feeding off each other, consider hiring a credit repair company.

A credit repair service has a staff dedicated to sending dispute letters and making phone calls on your behalf.

Someone who doesn’t have hours to spend each day on the phone can benefit from paying a pro to do this work instead. You’d probably spend at least $400 to $600 over a few months.

Finding a Good Credit Repair Company

A good credit repair company is staffed by experienced, competent professionals who know their way around the credit universe.

They’re well acquainted with disputing negative information and negotiating with creditors – even the uncooperative ones.

You’ll pay a fee for a professional credit repair service — both an upfront set-up fee and an ongoing monthly payment — but this expense may be well worth paying if your credit report shows a lot of negative entries.

If you have one or more particularly difficult credit situations on your report, you should lean toward a credit repair company that’s also a law firm (which many are). Often, just getting an attorney involved in your situation is enough to make the ornery creditor cooperate.

Finding the Right Credit Repair Company

You’ll need to be careful in selecting a reputable credit repair company. The industry has grown large in recent years, and it’s filled with companies that have little or no real experience.

Unfortunately, you’ll come across credit repair scams, too. So make sure the company you choose follows the Credit Repair Organizations Act. Ask about the CROA during your free consultation to make sure.

Be wary of a company that makes promises because nothing can be guaranteed in credit repair. Most reputable companies do offer money-back guarantees, but this isn’t the same as guaranteeing a dramatic increase in your credit score.

We keep a list of 10 credit repair companies you can check out to begin the search for one that will work for you.

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Credit Repair Software

Credit repair software is an area of credit repair that we usually discourage readers from using.

Software has become a big part of the growing credit repair industry, but it doesn’t offer the value of a professional credit repair company.

Instead, it gives you a set of tools to use in your own credit repair journey. You’ll still be doing the work yourself, but the software can help you stay organized. It can also help you write and format dispute letters.

With software, you’ll be charged a fee that can range anywhere from $50 to as much is $400.

There are three problems with credit repair software you need to be aware of:

  1. As discussed above, you’ll pay a fee for the product.
  2. They only provide forms, which means you’ll be doing all the work.
  3. In most cases, there’s nothing they provide that you can’t get elsewhere on the web for free.

Yes, a lot of products and services are now available on the web. But that doesn’t mean they’re all worth paying for.

Credit repair software falls into this category. Simply having forms won’t fix your credit problems, nor will it save you the time needed to get the job done.

Do-It-Yourself (DIY) Credit Repair

DIY credit repair is always an option as long as you feel up to the task. For a consumer with only a couple credit blemishes, DIY is the way to go.

But if you have more elaborate problems, the DIY approach will work better if you have some experience successfully disputing credit information in the past. You’ll also need to be comfortable having awkward conversations on the phone.

I won’t get bogged down in the details here; the first half of this post already focuses on this approach.

But here are some additional guidelines if you’re starting a DIY credit repair project:

Know your rights under the law

The Fair Debt Collection Practices Act is a federal law that limits what creditors can do to collect debts, and is administered by the Federal Trade Commission (FTC).

For example, this law limits when a collection agency or debt collector can call you, and it prohibits them from making threats.

Just knowing your consumer protections under this law can go a long way toward taming a hostile creditor.

Get a copy of your latest credit report

It’s best to have one report from each of the three bureaus, TransUnion, Equifax and Experian. Information can appear on one that isn’t on the others. Review each report, and highlight any negative entries.

Like I said above, get your free credit reports from annualcreditreport.com.

Look for errors

Many credit reports contain errors, usually of the negative variety. If you find errors, you’ll need to contact the three credit bureaus and open a dispute.

The credit bureaus will investigate the entry, and if it’s not yours, they’re required to remove it by law (Fair Credit Reporting Act).

Sometimes you may need to dispute an item directly with the creditor. If you do, you’ll need to write a cover letter that summarizes the dispute, and attach any supporting documentation.

But be warned that if you don’t have any documentation to support your claim, the creditor may not remove the item.

Contrary to what you may have heard or read, it’s generally not possible to get negative credit information removed without hard evidence.

Credit Monitoring Is a Must

By monitoring your credit you can prevent ever needing a major credit repair project.

You’ll notice problems — including identity theft and inaccurate information — before they destroy your credit score.

Free or paid credit monitoring services can help. Free services tend to offer the basics while a paid service can help rebuild your credit after identity theft or some other major problem wrecks it.

See our list of the best credit monitoring services here.

Credit Counseling Could Help

Nonprofit and for-profit credit counseling services can help you better understand your credit problems and come up with solutions.

Just make sure you stay in control of the process. Do not agree to your credit counselor’s new debt management plan unless you’re comfortable with it and you understand what’s required of you.

Time Heals All Credit Wounds – Eventually

You may have negative information that neither you nor a professional could remove from your credit history.

This could include public records like bankruptcies and derogatory credit information that’s reported accurately. Even if this is true, all isn’t lost.

The one advantage you have working in your favor with credit problems is time. The more time passes between the negative credit event and today, the less impact it will have on your credit score.

For example, a late payment from five years ago has less impact than one from six months ago. Eventually, all the negative information will fall off your credit report in its own time. This should happen within seven years and 10 years, depending on the type of derogatory information.

Do what you can to remove as much negative information from your credit report as possible. If your credit history shows a past-due balance or a collection account you owe, pay it or negotiate with the debt collector immediately.

And, as described earlier, pay all your debts on time from now on, and systematically work to add new, positive credit to your report. As your positive credit builds, and time passes, the negative stuff will eventually go away.

When the negative information ages off and you have only positive information building your score, you’ll have excellent credit.

A Guide to Repairing Your Credit

We’ve summed up our best credit repair strategies into an infographic. Here’s our bad credit survival guide:

credit repair guide

In this article, we’ve presented a high-altitude view of the credit repair process.

It can be fairly simple if you only have a little bit of bad credit, or you’re just looking to improve your score. But it can be amazingly complicated if you have a long history of bad credit.

That’s when you need to call in the professionals, like credit repair companies, and avoid making any more mistakes to hurt your credit any further.

But check back with us on a regular basis. We’ll be expanding on each of these topics going forward.

If you have thoughts of going the DIY route to credit repair, you won’t want to miss any of them.

Best Credit Repair Software

Be careful when you buy credit repair software. Many programs promise a lot, including dramatic increases in your credit score.

In reality, the software cannot provide a miracle cure for a bad credit score. When you buy a credit repair software program, you’re buying tools to help you repair your own credit.

The software can make your credit repair process easier, but it’s still up to you to do the actual repair work.

So which credit repair software program offers the best tool kit for your project? Let’s take a closer look to find out.

The Best Credit Repair Software Programs

Credit repair software should make life easier when you’re working to repair your credit  — whether because you fell behind on your bills or because of reporting errors to the credit bureaus.

Here are my favorite credit repair software programs:

  • Experian Boost
  • Personal Credit Software
  • TurnScor
  • Credit-Aid
  • Credit Detailer
  • Intuit Turbo

Click on the map below to see how a credit repair professional can help save you time
compared to DIY software.

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Experian Boost

Experian logo

I want to mention Experian Boost first because it’s an anomaly on this list.

Rather than offering a toolkit to help you send and track dispute letters and goodwill letters to your credit card company, Experian Boost focuses only on boosting your score with Experian.

Here’s another key difference between Experian Boost and traditional credit repair software programs: Experian Boost gets results quickly without much work required by you.

When you sign up for this free service, Experian will sync with your bank account to analyze your utility and cell phone payments.

Typically, your utility and cell phone providers don’t report your payments to the credit bureaus. But by syncing with your bank account, Experian can incorporate these ongoing payments into your payment history.

If you always make on-time payments, syncing your bank with Experian will bolster your payment history, which is one of the biggest components of your FICO score.

As long as you’ve been paying your utility and cell phone bills on time, Experian Boost can increase your FICO score, especially if your score is below 680 right now. (Disclaimer: If you’ve made late payments recently, Experian Boost could hurt your score!)

This is one of the easiest ways to boost your credit score without putting in a lot of work upfront. But it’s also a Band-aid approach compared with a thorough credit repair project which removes negative items from your credit history.

Best For: Consumers with thin credit files or people with Fico Scores lower than 680

Price: Free

Experian Boost Pros:

  • Free of cost
  • Quick Set up Process

Experian Boost Cons:

  • If a lender uses credit reports from Transunion or Equifax to determine your eligibility, Experian Boost won’t help.

Start Boosting Your Credit Today!

Personal Credit Builder Software

personal credit repair software

Marketed as Personal Credit Repair and Personal Credit Builder, this program has become a go-to software solution for people with negative items pulling down their credit scores.

Unlike many other programs, Personal Credit partially automates the process of reaching out to the three major credit bureaus to dispute your negative credit information. This process can help you see results within 30 to 60 days.

Personal Credit works best for someone whose credit score has decreased because of a credit reporting error or because of recent fraudulent activity such as identity theft.

More advanced credit problems — such as a long history of delinquent bills or the presence of numerous charge-offs in your history — will take longer to repair. But this is true with any method of credit repair.

Best For: Someone with a simple credit reporting issue in need of a quick solution.

Price: As of 12/29/20 – $199.97 (Limited Time Offer!) – Original Price is $400

Personal Credit Software Pros:

  • Easy to use
  • Quick results for simple problems
  • Helpful legal support information included

Personal Credit Software Cons:

  • Cost is higher than competitors
  • More nuanced problems take more time to fix

TurnScor

turnscor credit repair logo

Each year I find myself liking TurnScor even more, partly because it addresses the nuances of long-term credit repair and maintenance — one of my favorite topics!

Credit maintenance should become a way of life as you monitor your credit score and fine tune your credit file by opening and closing accounts.

While it’s easy enough for anyone with basic computer skills to use TurnScor, the program encourages a slower, more deliberate approach to credit repair and maintenance.

This process can seem slow and time-consuming at first, but if you’re interested in long-term results, the knowledge and skills you’ll gain will pay off.

Best For: Someone with poor or fair credit who would like to steadily improve credit over months and years.

Price: $40

TurnScor Pros:

  • A longer view of your credit life
  • Great price point

TurnScor Cons:

  • Slower results for simple problems
  • The process can seem too immersive for someone who wants a quick fix

Credit Aid

Credit aid logo

Credit Aid is the elder statesperson of the credit repair business. This program helped launch the credit repair industry back in 2002.

While not as fast-acting as the Personal Credit Builder Software package I listed above, Credit Aid can still help you get your credit life back on track.

You can buy Credit Aid at a significantly lower price than Personal Credit because you’ll be doing more of the legwork with Credit Aid.

The program gives you the tools you need such as templates for letters to credit bureaus and a diary to help you keep up with your correspondence with the bureaus.

But you’ll be generating the letters and entering your correspondence into the log yourself.

The software also comes with a succinct guide to your rights as a borrower under federal law.

Best For: Someone who wants to be in the driver’s seat but still needs helpful tools.

Price: $30 ($10 for each extra license)

Credit Aid Pros:

  • Low price point
  • Established company
  • Thorough credit repair tool set

Credit Aid Cons:

  • User pays less but does more legwork

Credit Detailer

credit detailer logo

Here’s another established software program that keeps on plugging along by helping consumers fix their credit problems.

Like Personal Credit, Credit Detailer specializes in helping people who have credit reporting errors dragging down their score and preventing them from getting good interest rates on loans.

Also, like Personal Credit, you can expect Credit Detailer to do more automation on your behalf. Credit Detailer can generate letters and track responses from the credit reporting bureaus and collections agents.

If organization isn’t one of your strengths, you may need this level of automation.

You won’t get a sleek interface with Credit Detailer. Though frequently updated, secure, and efficient, Credit Detailer isn’t the easiest program to use, especially for mobile natives.

Best For: Someone who wants a robust credit repair partner.

Price: $300 to $400 depending on promotions

Credit Detailer Pros:

  • Bilingual (Full Spanish version available)
  • Established company
  • A thorough approach

Credit Detailer Cons:

  • Higher price point

Intuit Turbo

intuit turbo logo

You won’t find a more intuitive approach to credit monitoring than Intuit’s Turbo app and desktop program.

You may know Intuit from its industry-leading TurboTax software and online tax prep and its Mint program for monthly budgeting. You’ll get a similar ease of use with Turbo.

So why doesn’t Turbo rank higher on this list? Because it’s not really credit repair software. By itself, the app won’t help you take action to fix a credit problem.

However, the app can help guide you to better decisions because it provides so much information about your financial life at your fingertips. After all, the first step to improving your credit should be to find out exactly where you stand.

Turbo can help with that, and it won’t hit you with upsells and spam day and night.

Best For: A conscientious DIYer who wants to keep a finger on the pulse of his or her credit life.

Price: Free

Intuit Turbo Pros:

  • User-friendly, mobile-first design

Intuit Turbo Cons:

  • Does not take action or provide a toolset

Do You Need Pro Level Software?

As you shop and compare credit repair software programs, you’ll come across some more expensive options — some with monthly use rates and others with four-figure price points.

In most cases, these are Pro versions of the programs listed above; in other cases they’re credit repair business software programs for professionals.

Chances are, you won’t need this extra processing power unless you plan to open your own credit repair company and use the software to help clients other than yourself.

If you’re simply searching for tools to help you fix your credit, a program’s “Home” or “Basic” package should be enough.

If you are thinking about helping others repair their credit, check out Credit Repair Cloud which provides a great and affordable way to manage your clients’ credit reports. Credit Repair Cloud has a nice CRM platform.

Alternatives to Credit Repair Software

Credit repair software has its advantages:

  • You Pay Once: Unlike hiring a professional to fix your credit, you typically don’t pay monthly rates to use software. You simply buy the program and use it on your own terms.
  • You Pay Less: Since it’s a one-time purchase price rather than an ongoing subscription, you can pay less to buy software, especially compared to a credit repair service that charges you every month for a year or two.
  • You Stay In Control: Instead of hiring someone to do the legwork for you, credit software typically gives you the tools needed to improve your own score. This is important to consumers who value financial privacy.

Despite these advantages, there are times you may prefer hiring an actual credit repair professional to help fix your credit.

This may be especially true for people who have a wide variety of problems creating a multi-layered credit mess.

These more complex scenarios usually include:

  • Charge-offs
  • Bankruptcies
  • Tax liens
  • Reporting errors
  • Delinquencies
  • Debt-to-income ratio problems

Multi-layered problems often require more customized solutions and more persistent advocacy on your behalf — both of which credit repair companies can provide for an ongoing monthly fee.

How to DIY Credit Repair

Whether you’re using a software program or a professional credit repair service, keep in mind you can fix your own credit without help from either.

That’s right: You already can access your credit score and send appeals letters or make phone calls to the credit bureaus to dispute aspects of your reports.

This DIY credit repair approach requires a lot of tenacity, persistence, and organization skills which is why software or a paid service can be so helpful.

I recommend a DIY credit repair approach if you have a couple late payments on your credit file. Often, writing a goodwill letter can fix minor problems for the cost of a postage stamp.

More complicated problems require more persistence which takes time. Writing multiple dispute letters and following up on each one individually requires some kind of system.

If you can provide a reliable system yourself, you can save money on software costs or credit repair company fees. But consumers often need some kind of help managing this time-consuming process.

That’s why credit repair organizations like Lexington Law and Credit Saint exist.

Choosing the Right Software

Like any toolbox, a credit repair software program should match your credit repair needs. You wouldn’t use a screwdriver to hammer a nail. Likewise, you’ll get the best results if your credit repair software matches its job.

Your ultimate goal should drive your choice in software:

  • If you have a fairly simple problem and need a quick solution: Consider one of the more expensive programs such as Personal Credit or Credit Detailer. Or go without software and take the full DIY approach.
  • If you’re looking to improve your long-term credit life: Consider a less goal-specific program such as Credit Aid or TurnScor. Or try an actual credit repair company.
  • If you need easy-to-access information: Consider Intuit’s Turbo app as an info gathering tool. Apps like Credit Sesame and Credit Karma can also help, though they will send more credit card offers.
  • If you need a quick bump to your FICO score: Consider Experian Boost, the free and easy way to incorporate utility and cell phone payments into your payment history with Experian only.

Always Keep Improving

To lenders and insurance agents, your credit score communicates your level of honesty as a person. It’s not necessarily fair, but it’s an efficient system which limits risks and keeps costs low.

Increasing your credit score or repairing a falsely low score will impact your ability to borrow and can decrease the amount you’ll pay to borrow or get insured.

Credit repair software can help you fix your credit problem. But just like any other worthwhile project, you’ll have to continue monitoring and tweaking your credit life.

Can You Get a Mortgage with Bad Credit?

One of the most challenging loans to get approved for is a mortgage loan.

Many people with bad credit don’t even bother applying for a mortgage because they assume that they’ll instantly be denied.

Can You Get a Mortgage Loan with a Low Credit Score?

study by the Fair Isaac Corporation, or FICO, which is the most widely used type of credit score among lenders, found that credit scores for new mortgage originations have been dropping since tighter credit policies were enacted after the housing crisis.

New mortgage loans with credit scores less than 700 increased from 21.9 percent of all mortgages in 2009 to 29.7 percent in 2017. These include subprime loans for borrowers with scores in the 400s.

New mortgages with FICO scores less than 750 increased from 41 percent to 53 percent during the same time.

Loan originations for FICO scores of less than 650, which are considered mediocre or bad scores, increased from 9.1 percent in 2009 to 10.9 percent in 2017.

The truth is, there are options when it comes to getting a mortgage with bad credit.

How to Get a Mortgage with Bad Credit

While there are several options for getting a mortgage with bad credit, there will be compromises you’ll likely have to make. What it boils down to is that you will have to pay more than if you didn’t have bad credit.

Each option for getting a mortgage loan with poor credit has its pros and cons. Let’s get into some of the options you have.

Apply for the FHA Program

The first point to keep in mind is that having a bad credit score, usually under 650, is going to prevent you from conventional loan approval. The simple fact is that traditional mortgage lenders generally steer clear of bad credit.

However, the Federal Housing Administration does have a program to help people who have bad credit get approved for a mortgage loan. It’s important to understand that an FHA loan isn’t actually the FHA lending you money to buy a house. Rather, when you’re approved, the FHA will basically guarantee the loan. In other words, if you are unable to make your loan payment, the FHA will pay the lender.

FHA approval greatly increases your chances of getting approved for a mortgage. However, not everybody will be approved. For a full rundown of the credit requirements for an FHA loan, check out their website.

Get an Adjustable Rate Mortgage (ARM)

When you have bad credit the fixed interest rate you’ll get approved for will likely be too high and expensive. In order to keep your interest rate affordable, you may have the option of an adjustable interest rate. Otherwise known as an Adjustable Rate Mortgage or ARM.

An adjustable-rate may be a way to keep your interest payments at an affordable rate. However, adjustable-rate mortgages aren’t without their risks.

The risk, of course, is that since the interest rate is adjustable, it goes up and becomes unaffordable. Before taking out an ARM be sure and do your research. That said, here are a few questions you should be asking your mortgage lender before taking out an ARM loan.

  • How much can your interest rates fluctuate with each adjustment?
  • How often and soon could your rate possibly go up?
  • Are there any limits on how much the rate could increase?
  • Are there any caps on how much the rate could increase?

Ask Somebody to Co-Sign on the Loan

When you get somebody to co-sign on a mortgage loan, you can get the mortgage even if you have bad credit. Keep in mind that the co-signer would be fully responsible if you don’t make the payments.

This is a risky option because it could easily ruin close relationships with friends or family. This is especially true when it comes to a mortgage loan because it’s likely a very large amount of money being borrowed. In general, financial advisors recommend against this for that very reason.

FHA loans also allow for co-borrowers, which are similar to co-signers but don’t hold an ownership interest in the property.

Improve Your Credit Before Getting a Mortgage

A high mortgage rate can literally cost you hundreds of dollars a month. Therefore, it’s well worth the little effort it takes to clean up your credit report and improve your credit score prior to getting a mortgage loan.

Out of all the options we’ve discussed so far, simply improving your credit score is probably the wisest choice. Credit repair doesn’t always take a long time. In fact, if you follow these credit repair guidelines, you’ll discover that you can increase your credit score over 100 points in a couple of months.

3 Ways to Fix Your Credit for a Mortgage Loan

1. Request a Goodwill Adjustment

The most important thing you need to deal with before getting your mortgage loan is removing negative items from your credit report. This can greatly increase your credit score. Carefully look over your current credit report to find any negative items such as late payments, collections, and charge-offs.

Next, you’ll want to write a goodwill letter to each one of the original creditors for the negative items. A goodwill letter is basically a letter where you explain your situation, why the negative item occurred, and that you’re trying to apply for a mortgage loan. Then you ask them to forgive it and remove the item from your credit report. It sounds strange, but it works. The easiest way to write a goodwill/forgiveness letter is to use the sample goodwill letter I created as a template.

2. Get your Credit Card Balances Under 15%

Another thing that mortgage lenders will take a good look at is your credit card usage. In other words, if one or more of your credit cards are maxed out (or close to it), you need to get these paid down. In addition to paying down individual credit cards so the balance is under 15% of your available credit, you also need to make sure your overall balance-to-limit ratio is under 15%. Use my Balance-to-Limit Calculator to see where you stand.

3. Avoid Applying for New Loans or Credit Cards

It’s important that you don’t apply for any loans such as a car loan or credit cards while you’re in the process of getting a mortgage loan. The reason for this is that whenever you apply for any new loan or credit card it will show up on your credit report as a hard inquiry. A hard inquiry basically means that you’re seeking out credit and it looks bad when you’re in the process of getting a mortgage. Therefore, wait until after you’ve closed on your new house before applying for any other loans.

Lower Your Score to Save on a Home Loan

By waiting a couple of months to get a mortgage and focusing on improving your credit, you’re not only going to end up saving a ton of cash, but you’re also improving your situation for the future.

Lastly, keep in mind that a mortgage loan is a huge responsibility and whatever option you choice, in order to get a loan, will have a lasting impact on your financial wellbeing. Work carefully with your mortgage lender and do your research before making any decisions.

10 Newbie Mistakes to Avoid When Repairing Your Credit

When I started my credit repair journey almost 10 years ago I really had no idea what I was doing.

Unfortunately, there wasn’t a lot of reliable information about improving your credit back then so I basically learned through trial and error.

Part of the reason I created this site was that I made many mistakes in the beginning and I wanted to help others avoid making the same mistakes.

10 Mistakes to Avoid During Credit Repair

While I believe trial and error is a great way to learn, I want to make it easier on you by outlining what I believe are the most important mistakes you should avoid when repairing your credit.

  1. Avoid Talking Directly to Debt Collectors
  2. Don’t Agree to Anything Unless It’s In Writing
  3. Don’t Close Any Credit Card Accounts
  4. Don’t Apply For a Major Credit Card
  5. Get a Secured Credit Card To Build Credit
  6. Quickly Remove Negative Entries
  7. Pay Down Debt Quickly
  8. Avoid Getting Back Into Debt
  9. Consider Getting Some Help
  10. Be Patient

1. Avoid Talking directly to debt collectors

It seems to me that there are two main reasons why people want to improve their bad credit.

The first reason is so they can buy a house or car.

The second reason is that they are tired of getting harassed by debt collectors.

When you’re contacted by a debt collector, the best thing you can do is simply tell them to send it to you in writing and to stop calling.

Debt collectors are basically trained to toy with your emotions so you’ll pay them (even if it means you won’t be able to make rent).

They don’t care about anything but getting paid. Don’t risk getting roped in by a debt collector.

2. Don’t agree to anything unless it’s in writing

This one plays off the point above. When a collector calls you, don’t make any agreements.

All your correspondence should be done via email or snail mail.

Snail mail is even better than email because you can send letters via registered mail with delivery confirmation.

The reason why this is the best way to do it is with the delivery confirmation you’ll have records saying they actually received the letter so they can’t later say they never received it.

If you’re wondering what kind of letters or agreements you should be making with debt collectors, check out my post on how to remove debt collections from your credit report.

3. Don’t close any credit card accounts

This is a mistake that so many people (including myself) have made.

It seems logical that if you have credit cards with negative entries such as late payments, closing the account will improve your credit score.

The opposite is actually true. In most cases closing a credit card account will actually hurt your credit score.

The calculation that determines your credit score is based on a number of factors.

One of the most important factors is the length of your credit history. In other words, how long your credit cards have been open.

When you close a credit card account, you’re shortening the length of your credit history, and thus your credit score will take a hit.

The best solution is to keep the accounts open and attempt to remove the late payments from your credit report.

4. Don’t apply for a major credit card

I feel like this point is common sense but it’s worth noting.

When you have bad credit it’s unlikely you’re going to get approved for an unsecured major credit card such as American Express.

When you apply for credit it results in an “inquiry” entry that gets recorded on your credit report.

Multiple inquiries will hurt your credit score so you need to be careful about how many credit cards you’re applying for.

Don’t waste an inquiry on a credit card application that’s just going to get declined.

5. Get a secured credit card to build credit

Since you’re unlikely to get approved for an unsecured major credit card with bad credit, I recommend getting a secured credit card.

Almost everybody gets approved for secured credit cards because they are specifically designed for people with bad credit.

By getting a secured credit card you’re beginning the process of building new, good credit history.

It’s an important step in repairing your credit and I always recommend it’s what you start with.

I review secured credit cards on a regular basis in order to discover which are the best.

You can check out my secured credit card reviews if you’re ready for this step.

6. Quickly remove negative entries

In addition to building good credit history with a secured credit card, you’ll want to begin the process of removing negative entries from your credit report.

The quicker you remove these entries, the faster you’re credit score will improve.

I’ve written extensively on how to remove negative entries from your credit report.

Here is a list of articles that will help you depending on the type of negative entry:

  • Remove Late Payments
  • Remove Debt Collections
  • Remove Charge Offs
  • Remove Judgments
  • Remove Bankruptcy
  • Remove Repossessions
  • Remove Foreclosures
  • Remove Tax Liens

7. Pay down debt quickly

The key is to keep just a little bit of debt. The most important thing you need to do is pay down credit cards that are maxed out or close to being maxed out.

Next, you should begin the process of paying down your installment loans (like auto and student loans).

You’ll see a big jump in your credit score once these are all significantly paid down.

8. Avoid getting back into debt

One mistake I see people make over and over is that they get out of debt and improve their credit score so they can get a house, but within a year they’re back in debt and behind on their payments.

What’s the point in doing all this work to improve your credit score if you’re just going to mess it up again?

It’s simple: your behavior about using debt and credit has to change if you want to sustain a positive credit score.

This means not relying on your credit card, and more importantly, keeping tabs on how much you spend.

This is basic personal finance stuff that you should be practicing.

9. Consider getting some help

There might be circumstances where you should consider getting help from a professional credit repair service.

This is generally a good idea if you have a lot of negative stuff to clean up on your credit report, or you’re in a hurry.

These services can usually remove this stuff quicker than you can on your own. Obviously, they do it every day.

If you’re interested in going this route, check out Lexington Law Credit Repair. They’ll take care of you. Check out their website.

10. Be patient

Lastly, be patient. The journey to better credit can take a while.

The important thing is that you’re committed and persistent. It’s definitely worth the effort you put into it.

Not only will you come out of this with a better credit score, but you will have gained a ton of information on how to better handle your personal finances.

You’ll get there.

DIY Credit Repair in 5 Easy Steps

Having bad credit makes life a lot harder.

You won’t be able to open a new credit card, close on a mortgage loan, or even get a personal loan with affordable interest rates.

In most states, even your car insurance will cost more when you have poor credit.

The answer is DIY credit repair.

It’ll take some time and effort, but you can improve your credit score, one step at a time.

5 Steps To DIY Credit Repair

Repairing your credit can be easier if you follow these five easy steps.

I developed these steps after helping thousands of people improve their credit over the past seven years.

I think this is the quickest way to repair your own credit.

If you have any questions at all about any of my steps, feel free to ask me. I try to respond as quickly as I can!

  • Step 1. Start Monitoring Your Credit Score Monthly
  • Step 2. Rebuild Your Credit with a Secured Credit Card
  • Step 3. Start Paying Down Your Debt
  • Step 4. Remove Negative Items On Your Credit Report
  • Step 5. Apply for a Major Credit Card

Step 1. Start Monitoring Your Credit Score Monthly

Don’t, don’t, don’t skip this step! It’s time to start paying closer attention to your credit score!

This first step is so important because it’ll help you achieve the next four steps more quickly.

Federal law says you can get a free credit report from all three credit bureaus at annualcreditreport.com once a year. (Through April 2021 you can get a free copy of your credit report from each bureau once a week because of the coronavirus pandemic.)

Accessing your own credit reports gives you a front-row seat to your credit repair project. But there are other ways to monitor your credit besides reading your credit report every week.

A credit monitoring service, for example, can be a powerful tool in your do-it-yourself credit repair efforts.

FREE vs. PAID CREDIT MONITORING

You can use a free service like Credit Sesame or Credit Karma, or you can pay for extra features such as identity theft detection.

Personally, I like TransUnion’s credit monitoring service although it does require a subscription.

TransUnion is one of the three credit reporting agencies so I know the information I’m getting reflects one of my actual credit reports.

Experian and Equifax, the other two credit reporting agencies, also have similar services.

Learn More about Transunion

Step 2. Rebuild Your Credit with a Secured Credit Card

The only way to rebuild bad credit is to balance out your old, negative credit entries with new, good credit entries.

This is why DIY credit repair requires patience. It’s like turning a big cruise ship. You don’t always see the results of your good credit decisions immediately. But you have to keep making better decisions anyway.

But, you might ask since you still have bad credit, how you can possibly start making better credit decisions?

No one will give you a chance with a new account after they see your credit score, right?

That’s a very good question. Here’s the answer: You have to give yourself a chance to start making better credit decisions.

YOU’RE THE LENDER & THE BORROWER

A secured credit card provides just the tool you’ll need. With a secured credit card you provide a security deposit which insures your account.

The credit card lender won’t be taking any chances of losing money.

You’ll get a credit card that works just like any other credit card account. Except if you fail to keep up with your payments, you’ll lose money (your security deposit), not your credit card issuer.

You should use your secured card for routine purchases and then pay off the balance on time every month.

BENEFITS OF A SECURED CREDIT CARD

A secured credit card provides a great way to start building a positive payment history which comprises 35% of your FICO score, by the way.

Paying off the card each month will also help your credit utilization ratio — another 30% chunk of your FICO score.

Once you have used your secured card a few months, check your credit report (this is where the credit monitoring is important) to see how your score has changed.

Once you’ve had a secured credit card for six months or so, you may have enough positive credit history to qualify you for a regular, unsecured credit card.

By making on-time payments on your unsecured card — and keeping the balance below 30% of your credit limit — you will further improve your credit score.

I recommend opening a Primor Mastercard Secured Credit Card to get started with.

Learn More about the Primor Card

Step 3. Start Paying Down Your Debt

Now that you’re off and running building new good credit, the next step is to pay down your existing debt, even for accounts with past-due balances.

Start with your smallest debts and move to the bigger debts. Or start with the account with the highest interest rate and work your way down.

Having a strategy makes it easier to stick with your payment plans. The less debt you have (particularly credit card debt), the better your credit score can climb.

You don’t have to worry about your mortgage or car loans so much; focus especially on credit cards, personal loans, lines of credit, and other sorts of consumer debt.

KEEP SOME PAID-OFF ACCOUNTS OPEN

Lowering the amount of credit you use in relation to your available credit limits will spark growth in your credit score. So along with paying down debt, consider keeping some paid-off accounts open.

Open, paid-off accounts decrease your credit utilization rate which affects 30% of your FICO and other credit scores.

Keeping accounts open will also increase the average age of your credit accounts which affects another 10% of your FICO.

Now, if you have collection agencies contacting you about old debt and posting negative information on your credit score, you shouldn’t necessarily pay off this debt yet. Doing so won’t always help your credit score.

We’ll get into removing collection accounts and other negative items in step 4.

Step 4. Remove Negative Items On Your Credit Report

You’ll need to find those up-to-date copies of your credit reports — or download new copies at annualcreditreport.com — to complete this step.

Once you have your reports in hand or on-screen, go through them and identify the negative entries.

These negative items could include the following things:

  1. Late payments
  2. Collections
  3. Charge offs
  4. Foreclosures
  5. Repossessions
  6. Tax Liens
  7. Bankruptcies

This step is one of the most important, but it’s also one of the most difficult steps. You should start by sending your creditors goodwill letters.

A goodwill letter is different from a dispute letter. In a goodwill letter you should claim responsibility for the negative item — whether it’s a just a delinquency on your student loan or a charge-off on a major credit card.

Let the creditor know you’re working to rebuild a good credit history so you can get a new mortgage (or achieve some other financial goal.)

Ask the creditor to remove its negative information from your credit files with all three major credit bureaus.

Goodwill letters work more often than you might think; however, the creditor is under no obligation to help improve your credit profile.

FIXING INACCURATE & NEGATIVE INFORMATION

If your negative information comes from inaccurate information, you should not send a goodwill letter. Instead, send a credit dispute letter.

Let the creditor know about the mistake and ask it to correct the inaccurate information.

The Consumer Financial Protection Bureau, which is part of the Federal Trade Commission, enforces the federal Fair Credit Reporting Act (FCRA).

This legislation requires creditors and credit bureaus to report only accurate information about you.

Be sure to cite this law in your dispute letter. Once again, you’ll need to check your credit report to make sure the creditor follows through with the correction.

You can also send dispute letters to all three major credit bureaus.

REMOVING COLLECTION ACCOUNTS

Even if you pay off a debt that’s gone into collections, the collection agency won’t remove the negative item from your credit profile.

However, you could convince the collection agency to help in your credit repair process through a pay-for-delete agreement.

With this kind of agreement — which you must get in writing before paying anything — you can make your debt payment contingent upon the collection agency removing its account from your credit score.

You’ll need to negotiate this deal on the phone but be sure you have a written agreement in hand before mailing your check.

By the way, you don’t always have to pay the full amount. You could offer to pay half the account balance, and the collection agency may take you up on your offer.

ASKING FOR PROFESSIONAL HELP

If your credit repair process is complex — or if you’d rather not spend time calling creditors and checking for changes on your credit report — consider hiring a professional credit repair company.

I suggest you check out Lexington Law Credit Repair. This firm excels at removing incorrect information from your credit profile quickly and efficiently.

You’d have to pay a monthly subscription fee, but your new and improved credit score could help you save even more money by avoiding higher interest rates on loans.

Learn More about Lex Law

BE WARY OF SCAMS

Getting negative information removed from your credit reports can resuscitate your credit score within a month which qualifies as “overnight” in the credit reporting world.

If you come across a credit repair company that promises to remove negative information right away you may be dealing with a scam artist.

Same goes for a credit repair company promising to remove accurate information from your credit report.

First of all, a credit repair company shouldn’t promise you anything. Credit repair is more of an art than a science.

So if an offer sounds too good to be true, listen to your instinct. Don’t share your Social Security number or even your phone number. Report the company to the FTC.

Step 5. Apply for a Major Credit Card

Your road to better credit is almost complete. The final step is to apply for a major credit card.

But don’t apply for an unsecured credit card until you’re pretty sure your application will be approved.

Applying for new credit creates a hard inquiry on your credit report. Too many hard inquiries within a year can pull down your score.

Approval for credit cards relies almost exclusively on your credit score. So you may need to read a credit card account’s fine print to find it’s minimum credit score requirements.

Since you’re monitoring your credit score you’ll know whether or not you could get approved for the card.

Like I said above, in Step 2, making regular payments and keeping your credit card balances below 30% of your available credit limit will help your credit score continue to climb.

You’re on the right track. Stick with it. Well done!

Credit Repair Resources

In your journey to repair your credit, here are some quick links you will want to bookmark to save for a later date if you need them:

Credit Repair Resources to Bookmark

Credit Repair Companies

Lexington Law Credit Repair – If you’re the type of person who would rather have a professional handle it and just be done with the whole thing, I suggest you check out Lexington Law Credit Repair. They’ll take care of you.

Learn More at LexingtonLaw.com

Credit Monitoring Services

TransUnion Credit Monitoring – When you start monitoring your credit, you can stay on top of any issues that may arise, rather than being surprised. With Transunion, you can not only monitor your credit, but you also get a copy of your current credit report on a daily basis.

Learn More at Transunion.com

Identity Theft Protection Services

Identity Guard – If you are in the process of credit repair, you may want to start using an ID theft protection service to make sure that nothing worse happens in the process.

Learn More at Identity Guard.

Auto Loans

AutoCreditExpress – If you need an auto loan while repairing your credit, we recommend AutoCreditExpress as the best provider of auto loans with poor credit.

Learn More at AutoCreditExpress.com

Personal Loans

PersonalLoans.com – If you need help getting approved for a personal loan during credit repair, we recommend you check out PersonalLoans.com as the best provider of personal loans with poor credit.

Learn More at PersonalLoans.com

Mortgage Loans

LendingTree.com – The best place to go in order to compare different mortgage rates. I recommend checking LendingTree first in order to see what rates will be like for you.

Credit Cards

Secured Credit Cards – An important aspect of credit repair is building new credit, so I’ve taken the hassle out of finding the right card by reviewing several great secured credit cards.

Debt Settlement

CuraDebt If you have a lot of debt, you should consider debt settlement/consolidation. These guys will help you figure your debt situation out.

6 Most Common Credit Myths

One of the first things I quickly discovered when I began the process of fixing my credit was that many of the things I had heard about credit were completely false.

Common Credit Myths

Here is a list of the most common myths about credit:

  1. Canceling Credit Cards Will Improve Your Credit Score – FALSE
  2. Paying Down Installment Debt Will Increase Your Credit Score – FALSE
  3. There Is Only ONE Credit Score – FALSE
  4. You Have To Wait 7 Years For a Negative Entry To Be Removed – FALSE
  5. Keeping a Credit Card Balance is Good For Your Credit – FALSE
  6. When Multiple People Apply for a Mortgage, All Credit Scores Are Considered – FALSE

Canceling Credit Cards Will Improve Your Credit Score – FALSE

This is untrue for the simple fact that one of the largest determining factors of your credit score is age.

In other words, by closing credit card accounts, in most cases, you are shortening your average credit account age.

Many times this is advised by credit counselors for people who cannot control their spending, however, this does not translate into a credit score improvement by closing accounts.

Paying Down Installment Debt Will Increase Your Credit Score – FALSE

Paying down installment loans such as student loans, personal loans, and mortgages will not improve your credit score. In short, FICO does not care about the amount of the loan –just that it’s being paid on time.

I Only Have One Credit Score – FALSE

The fact of the matter is, in most cases, you have THREE credit scores.

Yes, there are three major credit agencies and while FICO uses the same method to calculate your credit score between agencies, there are usually minute differences between each credit report you have with these three agencies that translate into three different scores.

What does this mean? It means that your creditworthiness partly depends on which credit report happens to be pulled when you apply for credit.

A Negative Entry On a Credit Report Can’t Be Removed Until The Required 7 Years Is Up – FALSE

There are several methods that you can employ to remove negative entries from your credit report.

In fact, I can say that the worst (credit-wise) items on my credit report I got removed by sending off various letters.

Try to negotiate with the free negotiation and dispute letters I offer to my readers.

Holding a Credit Card Balance Is Good For Your Credit – FALSE

Actually, it’s the opposite. While it’s good to have credit card activity, the best way to improve and maintain a good credit score is to keep either a very low balance or no balance at all.

When Multiple People Apply For a Home Loan, ALL of Their Credit Scores Are Taken Into Account – FALSE

If, for example, you and your spouse are applying for a home loan, the only credit score that matters is the person with the HIGHEST income.

Note: This is general practice. Some lenders do take all borrowers into account.

Credit Utilization: Maintaining The Right Credit Balance to Limit Ratio

If you’re paying off your credit cards to improve your credit score, read this post first.

By the end of this post, you’ll know not to automatically close all your paid-off accounts — even when the total balance hits $0. Closing these accounts could hurt your credit utilization ratio.

About 30 percent of your credit score comes from your credit utilization ratio — a number that tells creditors how much of your available credit you’re using.

On a credit card with a $10,000 limit, for example, a $9,000 balance means you have a 90% credit utilization ratio for that card. Such a high utilization ratio would hurt your credit score.

Table of Contents:

  • What is Your Credit Utilization Ratio?
  • How Credit Utilization Affects Your Credit Score
  • What is a Good Credit Utilization Rate?
  • How To Calculate Credit Utilization
  • Ways To Lower Your Credit Utilization

What Is Your Credit Utilization Ratio?

I’m sure you’ve heard the saying “the rich just get richer.” If you’re like me, you probably know some people who prove this old adage is true.

It’s definitely true for your credit life. People who already have a lot more credit than they’re using — people with low credit utilization rates — have a better chance of getting new credit.

That’s not all: They also have a better chance of getting lower interest rates on new credit cards, and they have access to nice perks like cashback offers and low annual fees. In other words, they get more financial tools available to maintain a good credit score.

On the other hand, if your credit card debt has reached, or even eclipsed, your maximum available credit, you’ll have more trouble opening new accounts or getting competitive interest rates and higher spending limits.

Why? Because your credit utilization rate is telling creditors you’re not all that concerned about keeping your debt under control.

From a creditor’s point of view, you’re more likely to run up a large balance and then struggle to make payments to keep your credit card account in good standing. Statistics show you’re more likely to default on a revolving credit account.

How Credit Utilization Affects Your Credit Score

Most credit scoring models weigh your credit utilization ratio as about 30 percent of your credit score. Here’s the breakdown:

  • 35% based on Payment History
  • 30% based on Credit Utilization Rate
  • 15% based on the Age of Your Accounts
  • 10% based on your Credit Mix
  • 10% based on Hard Credit Inquiries

As you can see, only your payment history has a bigger influence on your credit score than your credit utilization rate.

And, like many things in your personal finance life, these different components of your credit history have a tendency to interact with each other, exacerbating the effects of a single weak spot.

Take your payment history, for example. If you have a number of late payments on your record you may have a couple hundred dollars in late fees added to your accounts.

These late fees will eat into your available credit which harms your credit utilization ratio as well as your payment history.

Late payments may also prompt your credit card issuer to hike your interest rates which increases total balances more quickly. This also cuts into your available credit.

So late payments alone can impact 65% of your credit score (35% payment history + 30% credit utilization rate).

What Is A Good Credit Utilization Ratio?

I recommend keeping your credit card utilization rate at or below 25%. I know this is a difficult goal to achieve, especially if you’re barely keeping up with swelling credit card balances as it is.

The good news: You can work toward this goal from two different angles:

  1. By paying down but not closing existing credit card accounts.
  2. By opening but not using new credit lines.

Either one — or both — of these strategies will help you raise the roof on your credit limit which should bump up your standing with the credit bureaus and, by extension, increase your FICO score.

How To Calculate Credit Utilization

Before I share more strategies about reducing your credit utilization ratio, let’s make sure you understand how to find your ratio.

You won’t find your ratio on your credit score. You’ll have to calculate your ratio by following these three steps:

  1. Adding together all the credit limits of your revolving accounts. For many people, this means credit card accounts, though it could also include other lines of credit. When you add together all your maximum credit limits, you’ll know your total available credit.
  2. Adding together all the account balances for these revolving accounts. This number will show your credit utilization.
  3. Dividing your credit utilization by your total available credit. The answer will be your credit utilization ratio.

Credit Card Utilization Ratio Example

Here’s an example. Let’s say you have four credit cards and one overdraft protection line of credit connected to your checking account:

  • Chase Bank Visa Credit Card:
    • Credit Limit: $5,000 / Account Balance: $4,800
  • American Express Credit Card:
    • Credit Limit: $10,000 / Account Balance: $2,200
  • Capital One Credit Card:
    • Credit Limit: $7,500 / Account Balance: $7,450
  • Visa Small Business Credit Card:
    • Credit Limit: $5,000 / Account Balance: $1,050
  • Wells Fargo Checking Overdraft Line of Credit:
    • Credit Limit: $1,000 / Account Balance: $0

Now let’s add together the credit limits and the account balances to get:

Total Credit Limit: $28,500 / Total Account Balances:  $15,500.

Dividing $15,500 by $28,500 gives us a credit utilization ratio of: 54%.

Individual Card Ratios Matter, Too

So far we’ve focused on your overall credit utilization but creditors also consider each individual account’s utilization.

In our example above, the Capital One credit card utilizes almost 100% of its available credit. So does the Chase Bank Visa. Even though the example’s overall credit usage rate is 54%, these high balance individual cards could hurt the account holder even more.

Even if your overall credit utilization were under 25%, having one or two accounts with high balances could still be hurting your credit score, though not as much as a high overall credit utilization ratio.

Installment loans like mortgages or auto loans won’t affect your credit utilization percentage since they don’t have revolving balances. However, your ability to get new installment loans, including personal loans, is influenced, in part, by your credit utilization rate.

It’s About Ratio, Not Actual Numbers

I’m often asked whether a credit card limit’s dollar amount matters to your credit use rate. For example, a card with a $200 spending limit that uses 90% of its available credit means you owe only $180.

Shouldn’t this lower dollar amount — $180, which many people could pay off in a month — hurt you less than an $1,800 balance on a $2,000 spending limit?

No, not from the perspective of your credit utilization ratio. No matter how low your credit limit, this value measures how much of your credit you’re using. In both cases, you’d be using 90%.

When you are repairing or building your credit, getting a credit card will help, even if the credit limit is low. But make sure to pay off the account within each billing cycle to keep your rate low.

Then, as you begin to build credit, you can request a higher credit limit which will help lower your credit utilization percentage even more.

Remember: keep your utilization as low as possible –preferably at or around 25%. The right credit balance to limit ratio is key to optimizing your credit score.

Ways to Lower Your Credit Utilization Rate

We’ve already covered the basics of lowering your credit utilization percentage. In a nutshell, you should pay off your balances but keep accounts open.

You could also try to open a couple new revolving accounts that you don’t plan to use, although this may not be an option if you already have average or poor credit.

I also recommend some more nuanced strategies to help fine-tune this ratio:

First, Get Your Free Credit Score

If you’re not sure what balances are being reported on your credit report, you should get an up-to-date copy of your credit report from TransUnion, Equifax, and Experian.

Visit annualcreditreport.com to request your free copy from each credit bureau. Study the section on your credit accounts to make sure you’re counting all of your revolving credit balances.

Get Your Free Credit Report

Other Strategies to Consider

When you have a good handle on your open credit accounts, consider some of these strategies to improve your ratio or to maintain a good credit ratio:

  • Ask for a credit limit increase: Sometimes a higher credit limit is just a phone call away, especially if your credit’s still in pretty good shape. Asking your credit card companies for a credit limit increase can deliver instant results. Just be sure you don’t use the new credit you have available.
  • Open a balance transfer account: If you can qualify for a low-interest balance transfer card you could consolidate several accounts into one and pay down the new card’s balance more quickly. Don’t close the accounts after you transfer their balances, but don’t use these cards anymore either.
  • Use a credit monitoring service: Services like Credit Sesame and Credit Karma won’t show you an official credit report but they can help you track your credit usage. These services also recommend new credit cards that can help you improve your credit utilization ratio.
  • Set up balance alerts: The best credit cards will send you balance alerts to your smartphone or email inbox when your card approaches its credit limit. These alerts can help you remember to address your credit utilization rate.
  • Pay on your balances more than once a month: By paying twice or three times a month, you prevent your balance from increasing and lowering your credit utilization percentage. (This is much easier if you use your credit card issuer’s app to make payments.) This strategy keeps your credit card company from reporting debt that’s temporarily high, artificially deflating your available credit.

Don’t Over-Analyze Your Credit Utilization Rate

Credit reporting and credit score calculation formulas include a lot of nuances. Any hard-and-fast rule — such as keep your credit utilization percentage below 25% — comes with exceptions.

For example, if everything else in your credit life is spectacular, surpassing the 25% mark for credit use won’t automatically sink your credit score. Your pristine payment history and your perfect blend of types of credit should help you keep a healthy score.

Instead, you should consider these kinds of rules general guidelines to follow, remembering that improving other areas of your credit life will also help your credit utilization ratio.

Other Ways to Improve Your Credit Score

To improve your credit score, follow these basic rules:

  • Make All Payments On-Time: This is the biggest component of your FICO score. Set up automatic payments, if necessary, to make sure you pay accounts on time.
  • Keep Paid-off Accounts Open: As you know from this post, your available credit helps your score. As you pay off debt, consider keeping revolving accounts open even when they’re paid off.
  • Limit Hard Inquiries: More than a few hard credit inquiries within a year can lower your FICO score some. Soft inquiries — such as checking your credit score or getting a pre-approval for a mortgage — will not harm your FICO score.
  • Keep a Variety of Accounts Open: Keeping a mix of accounts — a mortgage, a personal loan, a couple car loans, and a few credit card accounts — will help your score.
  • Be Patient: The age of your existing accounts helps bolster your FICO score. If you’re a young adult just starting to build credit, be patient for a few years while your accounts age.
  • Monitor Your Score: Get your free credit score every year and consider using credit monitoring services, even if they just share your Vantagescore which can clue you in to big changes in your actual FICO score.
  • Try to Save an Emergency Fund: Keeping an emergency fund that could pay your monthly bills for at least three months will help decrease your reliance on credit. If you lost your job — as many people have during the pandemic — you won’t have to immediately turn to credit cards, zapping all your available credit.

When you’re trying to fix credit score problems, you can achieve results by addressing your credit utilization ratio.

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What Lowers Your Credit Score?

Nobody wants to be defined by a number. But when you apply for a loan, your credit score — a three-digit number between 300 and 850 — can decide whether you get approved.

You’re probably a great person — a hard worker and a friend to many — but if your credit score raises questions about your personal finances, lenders will deny your application or charge a higher interest rate.

In most cases, lenders will check your FICO score which is based on data from the three major credit bureaus.

So today let’s look at what lowers your credit score so you can get started improving it.

Items That Can Lower Your Credit Score

Old problems can lower your credit score, whether you realized it or not.

Even as you develop good credit habits, your score could be dragged down by other problems from your past, including:

  • Bankruptcy: Some borrowers get so overwhelmed they have to hit the re-set button and restructure or dissolve their old debts. A bankruptcy can pull down your credit score for up to 10 years.
  • Charge off: When a creditor gives up and stops trying to collect your installment loan or credit card balance, your credit report may be pulled down by a charge-off.
  • Collection: If you don’t make a payment for 90 to 180 days, the creditor may sell your debt to a collection agency. The resulting collection account will drag down your credit score.
  • Foreclosure: Failure to pay a mortgage loan gives the lender the right to claim and sell your home. The foreclosure process pulls down your credit score a lot.
  • Repossession: Unpaid car loans can lead to a repossession which can also create bad credit.
  • Settlement: When you agree to pay less than what you owe to settle a debt, the settlement agreement can have a negative impact on your credit score.

If you have this kind of negative information in your credit history — and if it’s reported accurately — you’ll need to wait while this information ages off your credit reports.

Developing good credit habits, while you wait will set you up for having excellent credit in the coming years.

As old problems age off, your score will springboard in the right direction.

Most negative information stays on your credit report for seven years. (Chapter 7 Bankruptcy will stay in your credit history for 10 years.)

But over time, as older negative information ages, it will have a less negative impact.

Your newer positive credit data will be a more important factor.

Inaccurate Negative Information Will Lower Your Credit Score

Federal law requires the three major credit bureaus to report only accurate information in your credit history.

Yet credit reporting mistakes happen, and they can destroy an excellent credit history.

Identity theft is a reality, too, and it can sink your solid credit score within weeks.

Your first line of defense against inaccuracies and identity theft is to monitor your own credit.

You can monitor your credit through a paid service, a free app, or the free credit score checks your credit card issuers may provide.

You can also get a free credit report from each of the three credit bureaus once a year through annualcreditreport.com.

This service is provided by the Federal Trade Commission.

Checking on your own credit regularly helps you stay ahead of mistakes and detect the warning signs of identity theft.

For example, if your credit monitoring shows a series of hard inquiries from credit card companies — and you know you haven’t applied for any new credit — there’s obviously either a mistake or fraud underway.

Get a Free Copy of Your Credit Report

How to Remove Inaccurate Negative Information

When you discover a credit reporting mistake or fraud within your credit history, you have the right to dispute this information.

Each of the credit bureaus — Experian, Equifax, and TransUnion — have online forms for disputing negative information.

The Fair Credit Reporting Act requires the bureaus to investigate your claim unless it’s obviously frivolous.

If they discover a mistake, they’re required to fix the error which could bump up your credit score.

When you detect identity theft you can freeze your credit with each bureau while you sort out the mess.

Learn More: How To Get Something Removed from Your Credit Report

Credit Repair Companies Can Help

When you have a complicated nest of credit inaccuracies pulling down your credit score, you may want to hire professional help.

Credit repair companies like Credit Saint and Lexington Law will untangle the mess for you.

They’ll charge a monthly subscription fee along with a set-up fee. You may spend upwards of $500 on credit repair within these three or four months.

But within those months a pro can get all your inaccuracies removed for you. If errors have pulled down your credit score, removing the errors should restore your good credit score.

Mistakes come in many different forms. An inaccurately reported charge-off or repossession could lower your score by 100 points or more if your credit is otherwise solid.

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How FICO Score Is Calculated

FICO stands for Fair Isaac Corporation, the company that developed the FICO scoring model which most lenders check when you apply for a credit card, mortgage loan, auto loan, or personal loan.

Data for your FICO score comes from your credit reports with Experian, Equifax, and TransUnion, the three major credit bureaus.

The credit bureaus get data from your current and past lenders, from collections agencies, and from public records in some cases.

For this post, we’ll call all these sources your creditors.

Elements of Your FICO Score

Your FICO score reflects credit data from five categories. The same holds true for your VantageScore, another model some lenders use.

Below I’ll list the categories and include some ways each category can lower your credit score:

Payment History: 35%

Payment history makes up 35% of your credit score. So late payments and missed payments have the potential to wreck your score.

Making payments more than 30 days late will start shaving chunks of points off your score within a month.

And this problem tends to compound month after month as 30-day late payments become 60- or 90-day late payments.

Set up auto payments if possible or use a personal finance app to help you remember to make on-time payments consistently.

Available Credit: 30%

How much credit you’re using makes up 30% of your score.

If you have maxed out credit cards, your score will be lower because you’re using so much of your available credit.

You may also see the term credit utilization ratio used to measure this part of your score.

Using more than 25% of your credit cards’ credit limits will start to pull down your score.

Length of Credit History: 15%

The length of your credit history makes up 15% of your credit score.

If you’ve never had a loan or a credit card before, you’ll have a young average age of accounts in your credit history.

If you’re just starting out in your personal finance life, your main strategy here will be to wait a few years and try to keep your new accounts open.

If you have already established a credit history, closing too many accounts can lower the average age of your credit and then lower your score.

So even if you get a debt consolidation loan and pay off your credit card debt, consider keeping some of the paid-off accounts open. (This will also help with your credit utilization rate.)

New Credit: 10%

This 10% of your score reflects how often you apply for new credit accounts.

Applying for several loans in a short period of time will be reflected in the credit inquiries section of your credit reports.

Each time you apply for a new account, your report will show a hard inquiry.

(A soft inquiry occurs when you check your own score or get a rate quote, and it won’t hurt your credit score.)

Mix of Credit: 10%

The FICO and other credit scoring models like to see variety in your types of credit.

Having a couple credit cards, an installment loan, a car loan, a student loan, a mortgage loan, and a home equity line of credit looks a lot better than having six or eight credit card accounts and no other types of credit.

Good Credit / Bad Credit Snapshots

To increase your credit score, develop good credit habits, and do them consistently, month after month and year after year.

A Good Credit Score Profile

Someone with a good credit score usually:

  • makes consistent, on-time payments
  • doesn’t use more than 25% of his or her available credit
  • has an average age of credit accounts of about seven years
  • doesn’t apply for new credit very often
  • has several different types of credit accounts.

A Bad Credit Score Profile

Someone with a bad credit score is more likely to have:

  • several missed payments or late payments older than 30 days
  • high credit card balances and even maxed out accounts
  • mostly new accounts or no open accounts
  • more than three hard inquiries within the past year
  • only one or two types of credit accounts.

A Credit Score Isn’t Everything, But It Matters

Consumers with average or bad credit will have fewer options when they need to borrow money.

The loan options they have available will normally require higher interest rates and charge higher loan origination fees — both of which lead to higher monthly payments.

Along with your credit score, your debt-to-income ratio and your ability to make a down payment could affect your borrowing power.

We’d probably all prefer banks and credit card issuers look beyond the data on our loan applications. But credit scores are and will continue to tell lenders what they need to know about our personal finance habits.

Developing better credit habits, staying patient while old negative information ages off, and getting inaccurately reported negative information removed from your credit reports will help your credit score climb.